Salary Freeze

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Definition: Salary Freeze

It refers to the management action of freezing salaries or halting salary hikes for a period of time. Salary freeze is a phenomenon witnessed when the company is going through financial troubles.

Rationale: Companies choose this route of salary freeze in order to minimize layoffs. Once the company’s financial condition improves, the salary freeze would likely be lifted. By freezing salary increases for a given period and thereby keeping fixed costs controlled, it is hoped by the management that the company will be able to produce greater profits and results .

The negative impact of a salary freeze for a company is that morale of the employees will take a hit and hence the these compensation issues might lead to retrenchment and valuable workforce leaving the company.


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